10 focus questions for management and audit committees
As we fast approach the effective date for IFRS 9, there is plenty of work to be done in a relatively short period of time. Many banks are well into their implementation projects, but equally there are many who still have much work left to do.
Larger banks are generally more advanced but smaller banks may not yet have begun to bite the bullet. If you haven’t already kicked off your IFRS 9 implementation project, I’d encourage you to engage – by yesterday if possible.
A number of my clients have recently intensified their implementation efforts. And they’ve found that the challenge is inversely proportional to the time left!
Even if your implementation project is underway, it’s time to start thinking about communication, and what disclosures you’re going to have to make.
The market is already expecting provisions for bad debts to be bigger under the new impairment requirements. But it’s important that you help to set the expectations of analysts and investors, so that they aren’t surprised by the actual figure when they see it.
Equally, they’ll want to understand how IFRS 9 will impact your regulatory capital position. And don’t forget that you will need to consider the new classification, hedging and disclosure principles as well – this is a big challenge.
Prudential, securities and audit regulators are also watching very closely. They are expecting robust, high-quality implementation of the new requirements.
Back in June, myself and the other IFRS 9 specialists from the six largest global accounting networks1 contributed to published guidance on implementing the impairment requirements of IFRS 9. Although the guidance is aimed at larger banks, it contains principles and insights that smaller banks can use too.
The guidance includes 10 questions that audit committees can use to focus discussions on IFRS 9 impairment plans, as well as more detailed information that management can use.
When my clients ask me this question, my response is: readiness for IFRS 9, and the disclosures for this year and next.
In terms of readiness, management need to squarely address the challenges that IFRS 9 presents. And audit committees need to oversee management’s efforts, by actively monitoring progress and requesting regular updates. It’s worth remembering that banking supervisors are showing a keen interest in bank readiness.
Disclosures in 2016 and 2017 will have to reflect progress made on implementation. You’ll also need to include information in your annuals and interims about the expected impact of IFRS 9. Both the European securities regulator, ESMA, and the Enhanced Disclosure Task Force are encouraging a gradual and phased approach to disclosure in the run up to the 2018 implementation date.
The need to engage with IFRS 9 becomes more pressing by the day. If you haven’t engaged yet, I would encourage you to start straight away.
If you have started, then I suggest you make sure that plans are on track to address the key challenges of IFRS 9 and provide useful disclosures in the run-up to adoption.
To help make this happen, you might like to read our quick guide to the GPPC paper on impairment, which summarises the implementation challenges and key focus areas.
Chris Spall leads the global team that develops KPMG’s guidance on financial instruments.
1 BDO, Deloitte, EY, Grant Thornton, KPMG and PwC; represented by the Global Public Policy Committee (GPPC).
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